Participants in 401(k) plans of moderate means are deferring more of their pay to retirement plans than ever before, according to the Plan Sponsor Council of America’s 58th Annual Survey.
A “non-highly compensated” employee, an IRS classification, includes anyone making below $115,000 a year.
The cohort averaged a 5.8 percent deferral rate in 2014, up from 5.3 percent the previous year, about where the average has hovered since 1997.
What’s more, the group is closing the gap on highly compensated counterparts, whose average pre-tax contribution was 6.9 percent of pay.
The survey shows that almost all full-time employees—99 percent—are eligible to participate in their employer-offered plan. An average of 80.5 percent of eligible employees made contributions to plans in 2014.
When considering all employees—full and part-time, and salaried and wage earners—90.9 percent of all employees at the respondent companies are eligible to participate in their company’s DC plan. About 70 percent of plans allow part-time workers to participate.
The PCSA survey took the pulse of 592 plans—263 were 401(k) only, another 324 combine a profit sharing plan, and five only offered a profit sharing plan—that included 8.8 million eligible employees and $785 billion in plan assets.
Sponsors are also chipping in a bit more to employee accounts. The average 401(k) contribution was 3.2 percent in 2014, up form 2.9 percent in 2013. In plans that combine a profit sharing plan, the average employer contribution was 5.5 percent.
Of all plans, 95.6 percent made employer contributions.
The survey says employer contributions are set by a variety of formulas. About 43 percent use a fixed-match formula: 39 percent match half of employers’ contributions, most commonly capped at 6 percent of deferrals; almost 35 percent are making a dollar-to-dollar match up to a four, five, or 6 percent cap of employee deferrals.
For all types of plans and all plan sizes, total contributions averaged 19 percent of company earnings. In 401(k) plans, employer contributions averaged 12.3 percent of net profits.
PSCA’s nearly 120-page report is among the most comprehensive summaries of the defined contribution industry.
Hattie Greenan, director of research and communications at PSCA, is bullish on what this year’s data means for the value of 401(k) plans to the country’s retirement landscape.
"The data shows that the private, voluntary, employer-sponsored defined contribution system works well for both companies and participants,” Greenan told BenefitsPro.
“Part of what works well is the flexibility the employer has to design plans to meet the unique needs of the company and its specific employee population,” she added.
Taking into account average participant and employer contributions, a good portion of non-highly compensated employees are contributing 9 percent of salary annually, inching them closer to the often-cited 10 to 15 percent benchmark recommended by many retirement experts.
While that success is notable, it also underscores the saving challenges faced by the estimated 50 percent of the workforce without access to a workplace plan, and the challenges industry faces in reaching those business owners.
“Expanding access to plans starts with making it easier for small businesses to offer plans to their employees, not through mandates or more regulation," said Greenan.
More than 52 percent of plans now incorporate and automatic enrollment feature, but there is wide disparity relative to plan size.
Almost 70 percent of plans with more than 5,000 participants deploy an auto-enroll feature, while only 19 percent of plans with fewer than 50 participants do so.
The most common automatic deferral rate is 3 percent, but more than 40 percent of sponsors are now defaulting workers in at more than that.
Plans with auto-enrollment have a participation rate that is about 10 percent higher, according to the survey. Deferral rates are reportedly equal between auto- and self-enrolled participants.
The average plan menu included 19 fund options. Seven in 10 plans offered a target date fund, with 15.8 percent of all plan assets allocated to them, on average. That’s up from the average of 4.5 percent of plan assets invested in TDFs in 2007.
Almost 65 percent of the target-date funds used are actively managed. Sponsors chose TDFs as the qualified default investment alternative about 74 percent of the time.
And managed accounts are now offered in 33.7 percent of plans, though they are chosen as the QDIA only 8.5 percent of the time.
Only 9.1 percent of plans offered a lifetime income option to participants.
Investment advisors were used by 69.5 percent of sponsors.
Of those that did seek a plan advisor, 62.8 percent of sponsors were charged a fixed fee, and 31.9 percent were charged as a percentage of plan assets.
Company stock was offered in 14.3 percent of all plans and held an average of 17.7 percent of plan assets.
And 6.6 percent of plans have more than 50 percent of plan assets in company stock, down from 17 percent of plans with as much 10 years ago.